McKinsey 7S: what it is and what to do instead

The idea worth keeping

Not as boxes to fill, but as questions that fall out of the maths of the goal:

• Which performance number got worse, and by how much?
• Which process produces that number?
• What changed in that process: the systems, the people, the structure or the incentives?

Why reaching for it fails in an interview

• It is generic. Seven boxes fit any organisation, so naming them shows nothing about this one.
• It misses the driver that matters. An insurer's problem shows up in claims paid and expenses, which the seven boxes never mention.
• It sounds rehearsed. A tour of strategy, structure, systems and the rest sounds like a slide from a course.

What to do instead: a worked case

1. 1

   Pin the question

   Find what made underwriting results worse since the merger, and fix it.

2. 2

   Write the maths of the goal

   • Combined ratio = loss ratio (claims / premiums) + expense ratio (costs / premiums)
   • Below 100% the insurer makes money on underwriting; above 100% it loses money
3. 3

   Use what you know about the business

   • Insurers judge underwriting by the combined ratio, so any problem shows up in claims or in costs.
   • Merging claims systems often loosens checks for a while, so more doubtful claims get paid.
   • Running two IT systems side by side raises costs until one is switched off.

   The structure that falls out of it

   • Loss ratio
     • Claims frequency and size
     • Checks on doubtful claims in the new system
   • Expense ratio
     • IT systems running in parallel
     • Staff in duplicate roles
   • Premiums
     • Customers leaving after the merger

   Hypothesis: I expect both ratios got worse: claims checks weakened in the system move, and costs are doubled while two systems run.

4. 4

   Find the facts that decide it

   • Combined ratio rose from 96% to 101%: loss ratio from 65% to 68% and expense ratio from 31% to 33%.
   • Claims paid without a fraud check rose after the move to one claims system, and both old IT systems still run.
5. 5

   Say so what

   The merged insurer lost its underwriting profit (combined ratio 101%, up from 96%) because claims checks weakened in the new system and it pays for two IT systems. Restore the fraud checks first, which targets the 3 point rise in the loss ratio, then switch off the old system to recover the 2 points of cost. The risk is service: tighter checks must not slow honest claims.

Build the acumen behind it

The worked case used two things a list cannot give you: the five moves, and knowing how this kind of business makes money. These pages teach both.